Saving & Investing

I am receiving a complimentary analysis from a financial advisor this Friday. I really think I need help planning my future but I don't know what a good financial advisor can do for me. I'm 30 years old and have 10K in my 401K, life insurance, and a little savings. Under 5K in debt, and own a home. Do I need a financial advisor? I feel like there isn't much to talk about; with the little amount of money I have in all.

If any of you use a financial advisor can you give me suggestions on what questions I should be asking him?

I think that financial advisors can be very helpful, but a lot of them are basically sales people - all of their advice points you toward products that they sell you and result in the highest commisions for themselves rather than the best choices for you.  Be very careful in selecting an advisor. 

The VERY first question I would ask is "How are you paid?"  If the advisor is paid on a hourly basis - meaning that he or she charges you X amount per hour spent, then consider working with the persion.  It might be helpful at this stage to have someone spend a few hours helping you make sure you are on the right track - saving enough for retirement and investing that money appropriately, that you've got enough cash for emergencies and a savings plan for short and medium term goals and that you've got the money in the appropriate accounts, etc.  It doesn't seem like you would need much in the way of advising, but a little advice now may pay off big later.  Most people can figure this stuff out on their own with some research - reading some financial advice books, articles, etc., taking a financial planning course at the community college... But not everybody has the time or inclination to learn what they need to know to do it themselves, so it can help to have some professional advice. 

On the otherhand, if the financial advisor is paid on commision, based on what products he or she sells you, I would walk away.  I think that commission-based financial advisors have a conflict of interests and find it difficult to trust their advice.  What is best for your bottom line is rarely what is best for their bottom line.  In my own experience and the experiences of many people I have spoken with, commission-based financial advisors tend to push products that don't make sense for people - loaded mutual funds when there are plenty of no-load funds available, universal life insurance policies even though their fees are enormous and most people would do better with a term insurance policy, and so on. 

Given that you are getting a complimentary financial analysis, the skeptic in me says that this advisor is probably a commission-based salesperson rather than a financial advisor paid by the hour.  The reason is that many commission-based advisors give a complimentary analysis because they expect to recoup either costs with the products they will then sell you.  Advisors that are paid by the hour don't generally have an incentive to analyze your finances for free. 

As Lucy has already told you, beware of advisors with a product to sell. 

I suggest that you try looking at this government site:

http://www.sec.gov/investor/brokers.htm

I knew that I had that information somewhere, but I just couldn't find it before we had bad weather.

Best of luck to you on finding an advisor that you trust and  with whom you can be compatible. 

I have been in finance all my life.  I good FA can do some good for you, but in your situation, put as much as you can afford in your 401k and if you still have a little left each month, pay off debt. 

I definitely think that contributing to retirement and becoming debt-free is really important - as is having a decent-sized emergency savings account.  It is a process to get from where most people are to where they need to be though. 

Here is my list of priorities when people are trying to pay off debt, save for retirement, and build an emergency fund - slightly different from yours, but along the same vein:

1. Contribute to 401K to get the maximum company match. 

2. Contribute to RothIRA until total retirement contributions are equal to 5% of salary.  If this maxes out the allowable contributions to the Roth, then increase 401K contributions.  5% to retirement is a low number and will need to be increased later, but it will do for now. 

3. Build emergency fund - 1-3 month's salary.

4. While building emergency fund, also pay off credit card debt and personal loans - keep paying on student loans, car loans, and mortgages, but don't make extra payments at this point - focus on the emergency fund and paying off the unsecured debt. 

5. Once credit card debt and personal loans are paid off, increase retirement savings  and emergency fund savings.  The goal should be 10-15% of salary going to retirement savings and 6-9 months of living expenses in the emergency fund. 

6. Once the emergency fund is where it should be, if there are still any car loans or student loans hanging around, put the money that was going toward emergency savings every month toward these loans to pay them off - or - start saving for other goals like downpayment on a house, children's education, etc. 

This is the strategy that we used and are now completely debt-free other than our mortgage, have a well-funded emergency fund and our retirement savings is on track.  We are at the point now where we are saving for other things - at the present time we are saving for a new kitchen :)  It took awhile to get on track, but once we turned a corner, things started to fall into place. 

I like the RothIRA as a retirement savings vehicle because withdrawals in retirement are not subject to taxes.  I think that they are a really good way to balance tax liability in the future.  401K is good too, esspecially because most people have a company match, but who knows what sort of tax rates we will see in a few decades - someones going to have to pay off the national debt.  I think that for people who make enough that their annual retirement contributions will exceed the max allowed by the Roth, the tax deferred 401K is the next best thing to the Roth.